Flippers: 5 Insider Secrets to Negotiate Away Risk & Win at Closing

Today’s REI Classroom Lesson

Marck De Lautour shares 5 insider tips on what you need to negotiate on before you sign the paperwork and close on the deal.

REI Classroom Summary

The 5 tips that Marck shares can help protect you from unnecessary risks and avoid a headache at closing.

Listen to this REI Classroom Lesson

Real Estate Investing Classroom Show Transcripts:

Mike: Welcome back to the FlipNerd.com REI Classroom, where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.
Marck: Hey guys, Marck de Lautour here. I’m the host of your REI Classroom for the day. Just wanted to talk to you today, to all those flippers out there, wannabe flippers, that are kind of hitting at it for the first time or even some of those guys that have been doing it for a while. We flip a lot of houses and thought we’d just kind of pull some top five insider secrets to how to win at the closing table.
Mike: This REI Classroom real estate lesson is sponsored by theinvestormachine.com, FlipNerd’s private investor coaching program and your blueprint to investing success.
Marck: A lot of times you can negotiate away some of the risk that you’re facing up front. What we do is additional to our typical . . . We’re in the Kansas City region and we have a regional association that has standardized documents which we do use. However, we also throw in our own disclosure addendum.
Here’s why that’s important. We were consistently getting tripped up on about three or four different issues. We found that adding and negotiating up front when you’re originally negotiating sales price, the closing date and closing costs and all those things, we wanted to try and address some of the concerns when you’re still at the negotiating table. Here’s your top five things to how to win at the closing table and addressing these up front.
The first one is missing the closing date. It was getting really frustrating when these lenders would just consistently miss a closing date and say, “Oh sorry, we just need a one-week delay.” It was almost the assumptive response that they would just assume that we would naturally give them an extra seven days. It was driving us nuts. There’s really no reason for it other than the fact that we weren’t the number one on their tall stack of papers of closings that they had going on that month.
What we did, we said first of all, we would no longer close on a Friday because sometimes they would just need one more day. Well, one more day when you’re closing on a Friday means four more days because then you’ve got to go Friday, Saturday, Sunday, Monday and then not close until then. We no longer close on Fridays. We insist that we have to close on Thursdays.
Secondly, we would never allow a contract to get entered into without a per diem penalty. In fact, our closing addendum reads that if the closing date does not occur by a specific date in the contract then we will agree to extend it. However we would institute a $50 per diem. You can use $100, whatever. Then, the buyer would be held responsible for that if the lender chose not to pay it. If a buyer ever balked at that, our response would be, “Hey look, are you planning on . . . you asked for a 45-day close. We’re giving you your time period. We would prefer a 30-day close. If you’re wanting a 45-day close, we’ll give it to you. But, if you miss it, our money’s important to us. We have other closings that we need to schedule. If you’re going to miss a close date then you’re going to have to pay for it.”
Normally when you negotiate that up front it’s much easier rather than when they miss a close date for all of a sudden say, “Hey, wait a minute, I want $50 a day,” and then they kick you back and say, “No, I’m not going to do that now.” Again, do this all up front and you can win at the closing table.
Third thing is other title issues. We constantly found that although our title company was reputable, solid, strong, never made any mistakes, other title companies were consistently dropping the ball, messing up, not being good communicators. We finally added a clause into our contract that stated that if they did not close with our title company that we choose then. . . again, feel free to do that. You can close with whoever. But, if you don’t close with us then we’re not going to pay for your title insurance the seller would normally pay for. That immediately got all of our closings to be done at the one closing table. It just made for smooth closings and much, much easier. A small thing but a really good point to bring across to your buyers right up front.
The fourth thing that was frustrating was appraisals. Because we flip a lot of houses. . . You guys, if you flip something quickly you’ll know that oftentimes you’ll come back and have the lender require a second appraisal. That was driving us nuts because they would come back and say, “Well, the FHA says the buyer can’t pay for it.” I was like, “Okay, but there’s more party than just the seller. There’s the listing agent, the buyer’s agent, the lender. It shouldn’t just be on the seller to pay for it every single time.”
We finally put a clause in there stating that, “As the seller has recently put a lot of money into the home for renovation, it’s not uncommon for the lender to require two appraisals. It is the buyer’s sole responsibility to pay for any and all appraisals that are mandated by the lender.” With that verbiage it stopped us from having to pay for these second appraisals. Again, sometimes it truly is a lender’s rule that the buyer can’t pay for it. But again, have the buyer’s agent pay for it. Have the lender pay for it. Have the seller’s agent. Have someone else pay for it other than the seller every single time, or try and split that cost somehow.
Lastly, we were often getting asked for keys and possession ahead of the closing which was just another silly thing that you can often get taken advantage of. Again, with a Friday close it runs along. Another reason for the Thursday closing, because with a Friday close they’re saying, “Well, the U-Haul’s getting picked up on Friday morning we need . . .” But if the funding doesn’t occur until 4:00 p.m., that means the wire’s not going out until afterwards. That means you may not get your money until Monday. We require that we would not give up keys and possession until we actually had funding and that we’d received funds and that they could not put anything in the garage or anywhere until they’d actually closed. So, there was no possession early for keys or anything like that.
Anyway, hey guys, I hope you can incorporate this into your contracts. Remember, do it up front. That’s the whole point of this is negotiate everything up front so that you don’t need to be kind of scrambling at the closing table to try and save face at the end of the day. Again, Marck de Lautour with SBD Housing Solutions. Been proud to be your host today. If you have any other questions, reach out to me online. Be happy to help.
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